I recently blogged about the IRS’s broad relief for late filing penalties for 2019 and 2020 tax returns. During the height of the pandemic, taxpayers experienced many obstacles to the timely filing of their 2019 and 2020 tax returns. Because of the scale of the problem, the National Taxpayer Advocate, Members of Congress, and tax practitioner groups called upon the IRS to implement a comprehensive remedy including penalty abatements. To its credit, the IRS announced a broad late filing administrative penalty relief program on August 25, 2022, and has been automatically abating late filing penalties without the need for taxpayers to request penalty relief.
Late filing penalty relief will continue to be applied to returns received through September 30, 2022, and many of the refunds will be completed by the end of September. While the IRS is initiating notices and refunds for taxpayers who previously paid the penalty, its correspondence does not explain the penalty relief, can be confusing for taxpayers, and can generate questions. The IRS will need to abate certain penalties manually, such as those associated with the late filing of Forms 3520 and 3520-A, which will take somewhat longer to process. If the IRS has assessed penalties, they will be removed, and if a request for abatement was denied, it will now be automatically granted. If the abatement or removal of penalties generates a refund, it will first be applied to any outstanding liabilities, and the balance will be paid by check and mailed to taxpayers’ current address in the IRS’s system.
Taxpayers seeking information about whether this relief has been applied to their tax situations will likely find that the most effective way to get this information is to use their online account with IRS.gov to view their transcripts. If the taxpayer does not have an online account, I highly recommend he or she create one. With an online account, taxpayers can check their account information including balance, payments, tax records, penalties, waivers, and more. It’s a simple and secure way to get information fast without having to pick up the phone and is a useful tool to obtain tax information throughout the year.
Tax Tip: To verify whether a failure-to-file penalty has been removed (abated), look for a 167 posting on the lefthand side of a taxpayer’s transcript of account. If a refund was issued, you will see an 846 posting together with the date and amount of the refund.
Taxpayers assessed a late filing penalty will see a transaction code (TC) 166 on their account transcript that reflects the dollar amount of the penalty charged. An example is as follows:
166 Penalty for filing tax return after the due date 10-18-2020 $500.00
When a late filing penalty is later removed, including as part of the IRS’s broad penalty relief initiative, the account transcript will contain a TC 167 with a corresponding negative dollar amount reversing the late filing penalty charged. This transaction will appear similar to the following:
167 Reduced or removed penalty for filing tax return after the due date 09-15-2022 -$500.00
We recommend taxpayers and representatives seeking an explanation for an account adjustment or confirmation that penalty relief was granted bypass long wait times on the IRS phone lines by accessing tax account transcripts online and reviewing the account for these transactions.
A few months ago, I blogged about the type of IRS transcripts available, how these transcripts can be used, and how they can be requested. Though helpful, I recognize that IRS transcripts can sometimes be confusing and do not always present the full picture as it relates to a taxpayer’s account activity. IRS transcripts are built from the IRS’s Integrated Data Retrieval System (IDRS), an antiquated and complex system that uses codes to explain the activities that occur on a taxpayer’s tax account. To limit confusion, not all the codes presented on IDRS are provided on the transcripts available to the public, and some that are leave a bit to be desired in the way of explanation. I continue to advocate for improvements to make these account transcripts easier to understand, but in the meanwhile, let’s clear up some additional transcript issues that frequently cause confusion.
The code 290 is a multiple use TC. If there is a tax amount reflected to the right of the TC 290, then yes, additional tax is being assessed, and this could be for a variety of reasons. To determine why, you will need to look for other codes that may provide an explanation for the assessment (TC 977 – amended return filed, or TC 922 – review of unreported income, to name the most common). Otherwise, TC 290 is likely being used for another reason. Though the account may not have been audited, it is likely that something transpired on the account that has caused IDRS to require verification. As discussed below, a TC 290 with zeros is often used to signal to IDRS that this verification occurred.
In the example below, a $1,200 tax relief credit (TC 766) was posted to the tax account on April 27, 2020, long before the tax year 2020 federal income tax return was due (see Notice 2021-21 in which the IRS postponed the due date for 2020 returns until May 17, 2021). Under normal circumstances, a credit will simply remain on a tax account until a tax return is filed. The IRS’s computer system will not automatically generate a refund for an account that does not contain a posted tax return (TC 150). In this case, a TC 290 with zeros was necessary to signal that the overpayment could be refunded absent the posting of a tax return. Often times, there are many TCs on an account, so it is helpful to review all the transactions that carry the same cycle dates or transaction dates to fully understand some of the more complex account activities. For instance, on April 27, 2020, the TC 766 tax relief credit posted, the TC 290 with zeros posted to verify the refundability of the credit and release the refund, and the TC 971 generated the Notice 1444, a notice created to advise taxpayers of the economic stimulus payment they would be receiving.
|Code||Explanation of Transaction||Cycle||Date||Amount|
|150||Tax return filed||20210705||03-08-2021||$5,000.00|
|806||W-2 or 1099 withholding||04-15-2021||-$2,000.00|
|766||Tax relief credit||04-27-2020||-$1,200.00|
|290||Additional tax assessed||20201505||04-27-2020||$0.00|
|971||Notice Issued – Notice 1444||04-27-2020||$0.00|
The TC 290 also releases certain other account freezes that may occur when the IDRS system encounters activity that appears to be in conflict with normal processing. For example, if a tax return has posted to an account and a second return is received, a freeze is automatically set until the reason for the second return can be explored. When this happens, you will often see a TC 976 on the account described as a “duplicate” return. The system will not release any overpayments on the account until a TC 290 tax assessment has been made, a TC 291 tax abatement has been made, or a TC 290 with zeros has been entered to release the freeze when no tax adjustment is required. Likewise, if a payment is received on a full paid account, IDRS will often generate a freeze to hold the overpayment until the reason for the payment can be explored. In this case, you may see a TC 570 described as “additional account action pending.” If no tax adjustment is warranted, a TC 290 with zeros may be input to release the TC 570 freeze and allow any overpayment to refund, if appropriate. A TC 290 with zeros is often input when a penalty abatement request is considered, and sometimes the TC 290 with zeros is simply input to systemically generate a document locator number needed for the refiling of a tax return or tax account documents being returned to IRS files.
Note: To comply with IRC § 6103, which generally requires the IRS to keep taxpayers’ returns and return information confidential, the transcripts included in this blog are fictional.
Stay tuned for Part 2…
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.